"We've seen this before" in Europe. Austerity (Germany after WWI) breeds extermism and intolerance.

The central - and perhaps fatal - flaw of the euro is that it is a common currency without a common fiscal policy. ... Some anti-American Europeans ... take cold comfort from the fact that an economic meltdown rooted in the United States exposed the euro's inherent instability, but it is little solace to the Greeks, the Spanish, the Portuguese and the Irish that the tight fiscal conditions and long-term misery they face might have been avoided had that meltdown not taken place. Had those countries rejected the euro, they could have devalued their currencies to weather the financial storm. As it is, they face a Hobson's choice: to stay in the euro zone or leave and be driven into bankruptcy and destitution.

We've seen this before. In 1919, having witnessed firsthand the vindictiveness of the Paris peace talks at the end of World War One, John Maynard Keynes wrote in The Economic Consequences of the Peace that the punitive reparations imposed on Germany and Austria in the Treaty of Versailles were so severe that widespread poverty would inexorably lead to the rise of extremist politics and a second world war. Twenty years later, Nazism had brushed aside the democratic Weimar Republic, and the world was at war again.

Now, ironically, it is Germany imposing savage economic retrenchment on its neighbors. Citizens of the poorer European nations have been given no option but to pay off their debts, endure austerity for the foreseeable future, or be expelled from the euro zone. Half of young Spaniards under 25 are jobless, and even the most optimistic EU estimates suggest austerity will continue in the southern nations for at least a decade. For younger Europeans, that means leaving their country of birth to find jobs in Germany, Britain, or the Benelux countries, or staying home and unemployed. For those at or near retirement it means returning to work, if they can, to supplement their devalued pensions. There is no easy alternative to this punitive regime.

Pushing austerity rather than policies for growth has spurred an alarming rise in populist extremist parties, the clamor for the dissolution of established national borders, the resurgence of regional nationalism in Scotland, Catalonia and elsewhere, and the widespread resurgence of xenophobia and racial intolerance. There is now severe poverty in Europe on a scale not seen since immediately after World War Two. ... Greeks have lost a third of their earning power in the last five years and their prime minister, Antonis Samaras, warns that the social cohesion of his country is “endangered by rising unemployment, just as it was toward the end of the Weimar Republic in Germany.”

If it was austerity, it was not the kind of neoliberal self-executed austerity that we know today. It was austerity forced upon the Germans by third parties (reperations).

On the other hand, when you look at infractstructural projects on the communal level (financed through public bonds as well) you'll find a significant increase in social spending compared to the German Monarchical State, combined with a tremendous reduction in armaments spending (which is nothing but (economically useless) public consumption).

So yeah - the lesson applies: Scarcity breeds extremism. We should be mindful that not all scarcity is created equally though. A lot of historically contingent paths lead to scarcity among the poor and middle class.

6. Exactly. The German suffering in the 1920's and 1930's was externally imposed (by the terms

of the peace treaty that ended WWI).

Everyone says that Germans have a hyper-sensitivity to the dangers of inflation today because of their experience with hyper-inflation at that time. You would think that they would also be hyper-sensitive to 'externally imposed austerity' since that is what they lived through, too.

12. As long as you ignore the hyperinflation (nt)

13. Niall Ferguson has convincingly demonstrated otherwise ...

Not that I am fond of the guy, but I think it holds true - if you figure in communal spending (which arguably profited from hyperinflation) and all the nationalized services that became effectual under the Government (Almshouses were run communally run and therefore notoriously underfunded in the Kaiserreich).

This is not me arguing that the German people didn't suffer from reperations, especially the ridiculous stuff right after the armistice. I'm simply trying to point out important differences. Presumably, if you're comparing social spending during the Weimar year, the thing you want to compare it too is the Kaiserreich. Considering that, I'm not sure how "austerity" is even an accurate term as far as this particular episode is concerned, given that (social) spending exploded under the Weimar Republic as compared to any previous German government, national or regional. Hyperinflation surely ate away much of the substistence of lower and middle class germans but it surely did not provoke some sort of wholesale reduction in government services, except for maybe the short-lived reforms of 1923.

Undoubtedly, though, the german people were fleeced. Couldn't agree more with that.

8. "Externally imposed austerity" is only true up to a point.

Greece was extremely lax in internal revenue collection, allowed insanely early retirement (under 55 in many cases), gave social benefits that far exceeded their country's means to pay for them. Plus they got Goldman Sachs to cook their books that allowed them present fake data to allow them to join the euro, something that never should have happened, and yet they were allowed to remain, all because Mercedes and BMW (etc.) lobbied the Government to preserve the purchasing power of their customers in the Mediterranean region.

To expect Germany's already stressed-out taxpayers to foot the bill for Greece, Spain, Portugal and Ireland is unrealistic. Many Germans already pay 50% income tax (it doesn't take much to get there), plus 19% Value added tax on everything they buy except gasoline, which is taxed at much higher rate (about $8 a gallon at the pump in Germany). My 27 year old daughter in Frankfurt already pays that, and she's nowhere near the equivalent of $200,000 a year. My wife, who was a poorly paid social worker making less than 2500 euros a month, took home about 1500 euros a month. She just retired last year, and is looking at a monthly pension payout of maybe 700 euros a month. How much are people like her supposed to give up for Greece, Portugal, Spain and Ireland?

The German economy already runs a deficit, albeit a small one, and has already absorbed millions of immigrants from the rest of Europe. It can't support the rest of Europe on its own. Everyone knows, including the Germans, what kind of reactions occur when the people in Germany get bled dry. After World War II, they went from being one of the most militaristic nations in Europe to being one of the most pacifist. It would be a really good idea to keep it that way.